An analysis of the tax bill Kentucky state lawmakers pushed through on Monday shows that 95 percent of the state’s residents will see a tax increase while the wealthiest Kentuckians will see their taxes lowered.
The study was performed by the Institute for Taxation and Economic Policy in Washington D.C., a liberal-leaning think tank, and shows that sales tax increases -- which are more difficult for lower-income people to absorb -- constitute the bulk of the overall tax hike.
The bill applies Kentucky’s 6 percent sales tax to 17 services, increases the cigarette tax by 50 cents per pack, and cuts the individual and corporate income tax to a flat 5 percent tax. It also cuts some typical tax deductions, including those for medical expenses, medical insurance, paid taxes and investment income.
“When sales taxes are increased, it’s going to hit lower-income people harder,” said Aidan Davis, a senior policy analyst with the institute.
According to the study, the top 1 percent of Kentuckians will see an average tax cut of $7,086 from the plan. People who make between $175,000 and $427,000 a year are likely to see an average tax cut of $776. Anyone who makes below $175,000 is likely to see a tax increase of $93 to $213.
The new sales tax scheme does include goods and services that wealthy people might use -- such as country clubs, landscaping services, limousine services and golf courses -- but as the Herald-Leader notes:
[T]hose taxes don’t represent a significant portion of wealthy Kentuckians’ income and serve as a small source of revenue for the state compared to the cigarette tax and the tax on auto repairs.